Today’s tickers: GRMN, DF, FDG, MSTR, NRG, GOOG, VIX
GRMN –Shares in Garmin Ltd closed 10% lower at $108.11 as the market reckons with the implications of the company’s $3.3 bn bid for Dutch digital mapmaker Tele Atlas. The offer trumped an initial bid from Tele Atlas’ Dutch peer TomTom. With 120,000 options in play Garmin was one of the day’s top performers by sheer volume – active contracts in play measure up to a third of its open interest, by our reckoning. A look at the volume distribution showed 2.56 calls moving for every put, and it appeared that option traders were rather more optimistic about the price outlook for Garmin, even with this bidding war thrown into the mix. We observed heavy buying in November 115 calls, trading at twice the existing open interest, a move implying upside price movement into November. These calls were offered at a 64% discount from yesterday given the precipitous drop in share price, which may be enticing Garmin bulls to enter fresh longs now. Garmin shares are down 10% from the 52-week high of $125.68 set one week ago today.
VIX – Unsurprising news was good news from the Fed today, with a 25 bp cut in the Fed funds rate meeting with broad market approval. The Volatility Index added to a pre-announcement pullback, resting at 18.53 for a 12% decline on the session. A look at the volume distribution earlier today showed what appeared to be buying and selling of call spreads in the November contract between the 25 and 35 strikes – this morning’s decline in call-side premiums making it cheaper to position in calls in anticipation of an pull ahead in volatility. More than a quarter of today’s volume in VIX options is tied up in those two calls, offering an interesting peek at how option traders view the prognosis for volatility in the next three weeks. The market did, however, manage to attract some plays on a “waning volatility” paradigm. Some 12,000 lots in the November 16 puts traded to the middle of the market at a quarter apiece. A look at the delta on these puts indicates that the option market is pricing in just a 14% chance of a drop below 16 in November.
NRG – NRG Energy – Bullish call-side plays have sent options volume in Texas’ second-largest power producer to 38 times the average volume, and with more than 311,000 options in play it was one of the day’s absolute most liquid series as well. Shares in the company closed flat at $45.66. More than a third of today’s volume was tied up in buying of the March 45 calls, while the January 35 calls traded to the middle of the market at $11.50 apiece.
